Self Employed and Looking for a Home Loan? What Lenders Need to See
Being self employed has plenty of benefits, but when it comes to buying a home or investment property, getting a home loan can sometimes feel more complicated than it should. You might have a successful business, healthy bank balance and reliable income, but still find yourself wondering how a lender will assess your finances.
The good news is that being self employed doesn't automatically make it harder to get a home loan. Lenders simply need to understand how your income is earned, how consistent it is and whether you can comfortably manage repayments.
If you own your own business and are considering buying a property or refinancing here is what you need to know.
1. HOW DO LENDERS ASSESS SELF EMPLOYED INCOME?
Unlike employees who receive a regular salary, self-employed borrowers can earn income in different ways. You might operate as a sole trader, run a company, work through a trust or receive a combination of wages and business distributions.
Lenders will generally look at your financial records to understand your income and determine how much you may be able to borrow. Depending on your business structure, this may include:
Business and personal tax returns and notice of assessments - these help demonstrate your reported income over time.
Business financial statements prepared by an accountant and BAS Statements - profit and loss statements and balance sheets can help a lender understand how your business is performing. BAS Statements help show recent financial activity in your business.
Business ownership and income structure - if you operate through a company or trust, the lender many need to understand how income is distributed to you.
Existing debts and financial commitments - personal loans, credit cards, other mortgages and business liabilities may affect your borrowing capacity.
ATO Portal Statements - to see if you have any outstanding tax debts
Every lender has its own assessment requirements, so the documents you need will depend on your circumstances and the lender being considered.
2. HOW MANY YEARS OF FINANCIAL RECORDS DO YOU NEED?
Many lenders prefer to see two years of financial information. However, some may consider applications with a shorter trading history or one year's financial records, provided their eligibility requirements are met.
This can depend on factors such as:
How long your business has been operating.
Whether your income is stable or growing.
Your industry and previous work experience.
The strength of your financial position.
The lender's specific self employed lending policy.
If you have recently stared your own business, don't automatically assume you need to wait another year before exploring your options. It may be worth reviewing your circumstances early to understand what is possible and what you may need to prepare.
3. WHY YOUR TAXABLE INCOME MATTERS
Many business owners legitimately claim business expenses to reduce their taxable income. While this can make sense from a tax perspective, it can also affect how much a lender considers you able to borrow. For example, if your business generates strong revenue but reports a relatively modest profit after expenses, a lender may assess your borrowing capacity using that lower profit figure, subject to its policy.
Some lenders may also consider certain adjustments, such as eligible depreciation or other permitted expenses, when calculating income. The treatment varies between lenders and not every expense can be added back.
This is why it's helpful to understand how a lender may assess your income before committing to a property purchase.
4. WHAT IF YOUR BUSINESS INCOME HAS INCREASED?
If your business is growing, congratulations! But an increase in income doesn't always translate immediately into a higher borrowing capacity.
Some lenders may assess income using an average of two years, while others may consider the most recent year's income if their policy allows it and the increase is sustainable. For example, if your business profit has increased significantly over the past year, some lenders may be more comfortable recognising that growth than others.
The important thing is to understand which lender's policy best fits your circumstances, rather than assuming every lender will assess your income in the same way.
5. WHEN SHOULD YOU SPEAK TO A MORTGAGE BROKER?
Getting advice early can help you understand your potential borrowing capacity, the deposit you may need and the documents lenders are likely to request. It can also help you identify whether there are any steps worth taking before applying, particularly if your business is relatively new, your income fluctuates or you are planning a significant purchase.
Our brokers can compare lending options across a range of lenders and help you understand which policies may suit your circumstances. Approval will always depend on the lender's assessment and eligibility requirements.
YOUR OPTIONS
Being self employed shouldn't mean you have to navigate the home loan process on your own. At Phoenix Lending, we work with self-employed borrowers, business owners and working professionals to help them understand their lending options and find a suitable way forward. Whether you're buying your first home, upgrading, refinancing or purchasing an investment property, a conversation can help you understand where you stand and what your next steps might be.
Have questions? Book a consultation with us or give us a call.
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